Optimization Online


Robust Option Modelling

Frank Lutgens (f.lutgens***at***ke.unimaas.nl)
Jos Sturm (J.F.Sturm***at***uvt.nl)

Abstract: This paper considers robust optimization to cope with uncertainty about the stock return process in one period portfolio selection problems involving options. The ro- bust approach relates portfolio choice to uncertainty, making more cautious portfolios when uncertainty is high. We represent uncertainty by a set of plausible expected returns of the underlyings and show that for this set the robust problem is a second order cone program that can be solved eciently. We illustrate the approach for a benchmark tracking problem and discuss the added value of adopting the robust approach in a stochastic programming framework.

Keywords: Robust Optimization, Stochastic Programming, Portfolio Optimization, Nonnegative Cones

Category 1: Robust Optimization

Category 2: Linear, Cone and Semidefinite Programming

Category 3: Applications -- OR and Management Sciences (Finance and Economics )

Citation: Technical Report, University of Maastricht, 11/2002

Download: [Compressed Postscript][PDF]

Entry Submitted: 12/09/2002
Entry Accepted: 12/10/2002
Entry Last Modified: 01/08/2003

Modify/Update this entry

  Visitors Authors More about us Links
  Subscribe, Unsubscribe
Digest Archive
Search, Browse the Repository


Coordinator's Board
Classification Scheme
Give us feedback
Optimization Journals, Sites, Societies
Mathematical Programming Society